Promoters may have to buy 50% of public stake for delisting

PROMOTERS of listed Indian companies may have to acquire at least half the public shareholding in their firms to become eligible for delisting, going by a proposal being considered by capital markets regulator Sebi.
    The proposed norms for delisting by companies, which are expected to be approved by the regulator shortly and then notified, will mean that promoters will have to buy at least half the non-promoter holding, keeping the threshold limit of 90% intact. The rules now in vogue allow a company to opt out from listing its shares on an exchange or delist if promoters acquire 90% of the share capital of the company. The new regulations being considered effectively implies that a promoter with a shareholding of over 80% will have to not just acquire another 10% to delist shares but an additional half of the remaining public holding after the 90% threshold limit. In other words, once the promoter has acquired control of the 90% of the share capital of a company, he will have to still buy out 5% of the remaining 10% public shareholding.
    However, for promoters holding up to 80%, the new rule will not make much of a change from the existing delisting rule, while those holding more than 80% will have to buy more shares to abide by the new rule. The new rules will, however, retain the two crucial criteria of the existing regulations — the minimum threshold level for opting out of listing on an exchange will continue to be 90% promoter holding and the price discovery through a reverse book building mechanism.
    "The new delisting norms will be introduced very soon. We have sent the new proposed delisting norms to the law ministry for approval, which is expected to come shortly," said a top finance ministry official. According to sources, under the new rules, the acquisition of shares by promoters for their companies to qualify for delisting is likely to hinge on their shareholding levels. Incidentally, this will ensure that more shares will have to be obtained from public shareholders before delisting. Sebi has also decided to retain the present reverse book building exercise, rejecting an alternative price mechanism based on a fair value determined by a rating agency plus a premium of 25%.
    The reverse book building method is followed only in India. Reverse book building allows shareholders to tender their shares at a price of their choice while providing the acquirer the freedom to accept or reject the offer. Once the reverse book building process is completed, the final price is determined as the price at which the maximum shares are tendered. According to the listing agreement, all companies are required to maintain a public holding of 25% for continuous listing. However, some companies have been allowed to maintain a public holding of minimum 10% if their market capitalisation is more than Rs 1,000 crore and their share capital is more than 2 crore shares or such companies that have diluted less than 25% of their equity at the time of their IPO. Under the current rules, the minimum promoter shareholding threshold for delisting a company is 90% and 75%.
    Next week, the reverse book building for Mather & Patt Pumps will open for delisting, where the delisting threshold limit is 75%. Some other companies which got recently delisted are Rayban, Syngenta and Panasonic AVC Network. Sebi is also likely to allow easy delisting norms for small companies. This will enable them to get listed on the regional stock exchange, whereby they can get into bilateral agreements with public shareholders to fix the delisting price of the shares. "It will provide more clarity in the exact delisting threshold for a company compared to the current norms," said Ripplewave Equity CEO Mehul Shah.
    reena.zachariah@timesgroup.com